The world’s largest auto market, China, is reportedly planning to ban the sale of diesel and petrol vehicles to help tackle pollution and to develop the market for electric and hybrid vehicles.

Near Future

China’s vice-minister of industry and information technology, Xin Guobin, is reported to have announced to a forum in Tianjin that the working out of a timetable for the banning of fossil fuel vehicles is already underway. The vice-minister, however, didn’t give an accurate date for the cut-off point and could only say that the policy would be implemented ‘in the near future’.

World’s Largest Vehicle Market

The announcement is significant, not least because of the widely reported air pollution / smog problems in China’s major cities, but because China is the world’s largest auto market with more than 28m vehicles produced and sold last year (International Organization of Motor Vehicle Manufacturers figures). This number of vehicles represented an increase in demand of 13.7% on 2015 sales numbers.

Regulation And Incentives

To ensure that the policy is put into practice quickly, the Chinese government introduced a draft regulation in June to make vehicle manufacturers produce more electrically powered vehicles by 2020 using a (somewhat complex) quota system.

China has also introduced incentives such as allowing foreign automakers to joint venture with local automakers to build just electric vehicles, and the introduction by the government of a number of incentive programs for OEMs, including subsidies.

This push in China, so far, has meant that there were more than 500,000 new energy vehicle sales there in 2016, which is more 50% more than the previous year, according to national industry figures.
Deadline

As the draft regulation deadline approaches, foreign vehicle manufacturers have moved to boost the production of electric cars in China. For example, Volvo looks set to introduce its first 100% electric car in China in 2019, and Ford will sell its first hybrid vehicle there in early 2018, and predicts that 70% of all its cars available in China will have electric options by 2025.

Elsewhere In the World

The move to electric and hybrid is not new, and is not confined to just China. France has already announced that it will cease sales of fossil fuel cars by 2040, and the UK has also committed to that same timeline for its sales of those vehicles (as have cities like Madrid, Mexico City and Athens).

This week’s Frankfurt motor show is also likely to bring more commitments and more competition between carmakers over who is winning the race to electrify their vehicles.

Companies Too

Some companies are also making commitments to ditch fossil fuel vehicles. Uber, for example, has pledged to help tackle air pollution in London (where it has 40,000 drivers) by only offering electric or hybrid vehicles for UberX by the turn of the decade, and across the whole of the UK by 2022. Uber has said that it will help its drivers to switch to greener cars with a more than £150m fund, paying up to £5,000 per upgrade.

What Does This Mean For Your Business?

A switch to electric vehicles will help governments to meet pollution targets and could have a significant, positive environmental and climate change impact. For businesses, having to switch to electric vehicles could, of course, mean greater costs to purchase the vehicles in the first place, with the promise of reduced fuel costs.

The bigger picture of such a major shift to electric cars in China and across the world could have many implications, both direct and indirect for businesses. As well as providing new business opportunities in new markets for car makers, it could mean a fall in foreign oil imports to the UK and boosts in investment in UK infrastructure such as charging points.

Some sceptics have pointed out that despite the current hype and announcements about the targets and potential benefits, there are still only 2 million battery powered cars in the world (out of more than 1 billion cars), and that even with even with subsidies, they are still more expensive than petrol and diesel alternatives.

Some commentators have predicted that the ‘hit’ that oil demand will take could seriously affect major oil-producing countries’ budgets, and that some governments could be forced to impose spending cuts within the next five years. This could affect living standards and this, in turn, could have a negative affect on economies and many businesses.

Oil companies, however, say that oil demand will not dip because of rising prosperity in the developing world, although this may be an optimistic view considering that electric cars also offer countries a chance to tackle their air pollution problems, which in turn is attractive to their citizens.